SBDC Forum: Buying a franchise? Be cautious

A franchise opportunity, no matter how well-conceived or familiar, is not a guarantee of your success. Evaluating a franchise opportunity requires practical and personal considerations. Kick the tires, peek under the hood before moving forward, and proceed with caution!

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By Sam Kandel

recordonline.com

By Sam Kandel

Posted Jul. 22, 2013 at 2:00 AM

By Sam Kandel
Posted Jul. 22, 2013 at 2:00 AM

» Social News

A franchise opportunity, no matter how well-conceived or familiar, is not a guarantee of your success. Evaluating a franchise opportunity requires practical and personal considerations. Kick the tires, peek under the hood before moving forward, and proceed with caution!

When you purchase a franchise, you are acquiring a license to use a "proven" system to provide a product or a service. In exchange for a down payment, a percentage of gross sales, and likely an annual fee, you will receive training and support, possibly an exclusive territory, national and/or regional advertising opportunities, potential financing options and the benefits of a recognizable brand or trade name.

A solid understanding of basic business principles and practices is essential, as it is with any startup business. Prepare a well-researched business plan and financial projections. Through the process, you will be compelled to answer fundamental questions that will help determine feasibility, funding requirements and the short- and long-term viability of the business opportunity. Any commercial lender involved in financing your project will also require this.

Personal considerations include lifestyle preferences such as how much you want to work, and financial goals such as how much you need to earn.

The Federal Trade Commission requires that all franchisors publish a franchise disclosure document (FDD) that describes the business opportunity in detail, including fees, obligations, restrictions, training, financial statements and many more vitally important details. Read it three times! Then review it with an attorney, an accountant or other qualified business professional. Keep in mind that the FDD, though designed to protect you, is also the primary sales tool of the franchisor.

Once you understand the FDD completely, do a careful market analysis to determine whether the business model will work in your intended location. Some things to consider are general market conditions, demographic profile of the area, real estate prices, competition, traffic (vehicular and/or foot), availability of workforce, and any other issues particular to this franchise. Review publications, websites and blogs devoted to franchising.

Interview other franchisees willing to share their experiences with you in areas with similar demographics. Your best source of information — or inspiration — will be other franchisees. Prepare a list of pertinent questions, talk to as many of them as you can, and then make an informed and well-researched decision.

-- Sam Kandel is a certified business adviser for the Mid-Hudson Small Business Development Center. SBDC columnists appear on alternating Mondays. The SBDC offers no-cost, one-to-one business counseling to new and existing businesses. For more information, call 339-0025, email sbdc@sunyulster.edu or go to mid-hudson.nyssbdc.org.